Gunboat Economics?

Andreas Exenberger, Dr. Research Area “Economic and Social History” Faculty of Economics and Statistics, Leopold-Franzens-University Innsbruck Universitaetsstrasse 15, A-6020 Innsbruck Tel.: (+43)-(0)512-507-7409 E-mail: [email protected] Homepage: http://www.uibk.ac.at/economics/exenberger Paper for AHE 08 (London, July 14-16, 2006) (Version of June 1, 2006; rough draft, no citation without explicit permission) Gunboat Economics? An Essay about some of the Relationships between Wealth and Violence Introduction By working on the relevance of violence in economics (from an historical perspective) I discovered something seeming rather strange at first site: although there are a lot of historical examples that the performance (and appearance) of “gunboats” (not necessarily in the literal sense) directly influenced economic relations, there is no conceptual approach about that interrelation neither in economics nor in history. And while the term “gunboat diplomacy” is cited extensively in political and historical (and sometimes even in economical) contexts und even more, is commonly understood, there is no such thing as “gunboat economics” at all. To be correct, this is not completely true. In 1985 Jeffrey Garten published an article in Foreign Affairs even entitled “Gunboat Economics”. In the text however, he did not mention the term again and confuses it throughout the article, which is mainly a critique of Reaganomics and the unilateral (and economically protectionist) foreign policy of the administration Reagan I (1981-84), with gunboat diplomacy. Interestingly enough, during the last twenty years U.S. problem-solving did not change very much and both Bushes as well as Clinton continued and even intensified a foreign policy resting on means that can be summarized as “gunboats” (as I said, not necessarily in the literal sense, because the “gunboats” of our times are not battleships, but long-distance missiles, intervention forces and diplomatic pressure). But this particular case study, U.S. foreign policy during the last decades, is not the topic of this paper. Its scope is broader. It is attempting to shed more light on the relationship between economic performance and violence, particularly on the wealth created by the use of “gunboats” and their influence in shaping international economic relations and promoting globalization throughout the last centuries. This is attempted by comparing various gunboats: Portuguese ones changing the trading world of the Indian Ocean in the 16th century, British ones opening up 19th-century China (this event gave birth to the concept of “gunboat diplomacy”), U.S. ones doing the same for Japan and (later) taming the Latin American quest for total independence, and others – for example – securing oil in the Persian Gulf for the West. By this, the analysis is finally linked to contemporary conflicts as well. All this is done to establish gunboats (prominently) as an explaining variable in international economic relations and to make the first steps towards “gunboat economics”, which I understand as a model containing the influence of power and violence on international economic relations. This model would be closer to reality and would enable us to understand these relations better than by the usual “value-free” neo- classical analysis, often oblivious of violence at all or only including it in a completely alienating way and thus – at least – incomplete. Gunboat Diplomacy, Gunboat Economics and Gunboats in Economics While the term “gunboat diplomacy” leads to more than 100,000 hits in Google, “gunboat economics” only leads to around 100, many of them closely connected to Garten’s article. This is rather strange at first site, because the use of “gunboats” (historically often in the literal sense, but recently also in other forms) was dedicated not only to achieve political, but even more to achieve economic benefits. The term “gunboat diplomacy” usually refers to something like the “pursuit of foreign policy objectives with the aid of conspicuous displays of military power – implying or constituting a direct threat of warfare, should terms not be agreeable to the superior force” (Wikipedia). The basic idea behind gunboat diplomacy developed already during the 19th century, when gunboats developed as regular means of political strategy (and economic, but the borders were floating). Generally, “gunboats” symbolize military technology superior in fire power (not necessarily guns) as well as speed (not necessarily naval forces). It is quite clear that the history of gunboats is longer than the 160 years from the Opium War, and it is as well clear that also recent events can be characterized by the same concept of using advanced technology for posing military threats to achieve political or economic benefits. This does not necessarily mean that the player using gunboats is overall more powerful, but it means that the threat is substantial. While the British imperial navy was somehow responsible for coining the term, during the 20th century related concepts were mainly used by the U.S., like “big stick diplomacy” (when intervention forces were rather important) or “dollar diplomacy” (when money replaced military force). Clearly, the use of “gunboats” (even in the literal sense) was restricted nor to the Western world neither to the last two centuries. And some strange events in the history of “gunboating” even became part of the film history, like the German warship “Louisa”. In the famous movie “African Queen” (1951, Humphrey Bogart and Katharine Hepburn starring) it patrolled the Lake Victoria to control its shores against the British enemy during World War I, which points to the fact that particularly Germans always were very present in the arena of power politics. In political science there is another related term, power projection. This concept is applicable much more general. It points to: “The ability of a nation to apply all or some of its elements of national power – political, economic, informational, or military – to rapidly and effectively deploy and sustain forces in and from multiple dispersed locations to respond to crises, to contribute to deterrence, and to enhance regional stability.” (J1- 02: Department of Defense Dictionary of Military and Associated Terms) Power projection is one important ingredient of dominance in history. The connection to gunboat diplomacy is clear: it is only possible if power can be projected. In economics, gunboats usually do not enter the debate at all, but if they do, they do it in a rather strange way pointing to the very specific kind of creativity that economists have at their disposal. Metaphorically comparable to the assumption of “iceberg” transportation costs there is also an assumption of “gunboat technology”, mainly with reference to debtor-creditor relationships. The term, not very commonly used, means that the lender can confiscate the entire output of the borrower upon default (Bandopadhyaya 1995).1 Hence, for some economists “gunboats” are synonymous for an asymmetric power relationship enabling one player to dominate another player. In this meaning “gunboats” may even appear in the form of international treaties. In the end, this assumption is one explanation why states pay their debts in the end. As has been said in the introduction, the only instance that the term “gunboat economics” is used at all in something one may call “economics” is the twenty years old article of Jeffrey Garten in Foreign Affairs. He understood the term as “gunboat economic diplomacy”. In Garten’s words: “The American economy would serve as an example to the rest of the world. U.S. strength also would be used to force other nations to liberalize their economies and to get tougher with the U.S.S.R. If, as a consequence, foreign policy became strained, or if America had to skirt the edges of a trade war, so be it.” (Garten 1985, p. 541) His critique of this unilateral path (enforcing free trade throughout the free world) mainly point to the problem that the peculiar form of international 1 Reference for the concept, although not always directly stated, is usually paid to works by Froot, Rogoff and Krugman at the end of the 1980s and beginning of the 1990s. interdependence during the Cold War poses a danger to the U.S. herself, particularly because of the growing flexibility of capital at the beginning of the 1980s (today referred to as “financial globalisation”) and the connected weakness of the Dollar. Finally, Garten concludes that “a foreign economic strategy that is so overwhelmingly nationalistic will soon be emulated by other major trading nations. […] And our neglect of international economic institutions will weaken them just when they are vital to the recovery of debt- ridden nations or the development of e sensible framework for trade.” (Garten 1985, p. 558) This conclusion, as much of Garten’s article, is valid also in the 21st century. A lot of it sounds very contemporary and very familiar. That so much emphasis has to be put on an article twenty years old and published in a policy journal, points to the fact that the list of papers about gunboats in economics is rather short. Four recent examples provide the necessary exceptions from this rule. The earliest of these is a very interesting investigation of the determinants of world tariffs from 1789 to 1938 by Jeffrey Williamson (2003). The result of this paper is that two usual explanations for tariff rates, the Stolper-Samuelson-theorem and the infant-industry- argument, are less important (particularly the latter) than other factors, among those gunboats. This is summarized in the abstract of the paper: “Throughout the 150 years, tariff policy was driven consistently (and often more importantly) by revenue needs and strategic tariff behavior. Geography, home market size, world economic environment, trading partner behavior, gunboats and tariff autonomy all mattered. So did Stolper- Samuelson.” (Williamson 2003, Abstract) This is proven by econometric analysis that carries one important deficit: the influence of gunboats is not included directly, only the influence of de-facto-colonization, with is – at best – a proxy.

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